Australian Broadcasting Corporation v O'Neill

Judgment 1By Interlocutory Process filed 17 April 2013, the applicants, Mr Ruiz de Roxas and HDR Hospitality Consulting International Pty Limited ("HDR Consulting") seek, relevantly, an interlocutory injunction restraining, broadly, the respondents, Mr Yong, Joytown Pty Limited ("Joytown") and Resort Planners Pty Limited ("Resort Planners") (which are associated with Mr Yong and his wife) from moving a resolution, or voting on it, at a meeting of Eden Resort Hotel Pty Limited ("Company") proposed in a notice of meeting dated 2 April 2013. 2By way of background, Mr Ruiz de Roxas is the sole director and shareholder of HDR Consulting and a director of the Company, a position which he has held since 2000. Mr Yong is also a director of the Company. The Company purchased and is involved in planning the development of a resort in Eden, New South Wales. By Originating Process filed on 6 March 2013, Mr Ruiz de Roxas and HDR Consulting sought orders under the general law and under ss 247A and 290 of the Corporations Act 2001 (Cth) for access to the Company's books and financial records. 3By his affidavit dated 17 April 2013 Mr Ruiz de Roxas' solicitor indicates that he is instructed that the Plaintiffs now seek leave to file an Amended Originating Process, which will also seek orders against Joytown and Resort Planners, including orders restraining them from moving or causing to move a resolution seeking to remove Mr Ruiz de Roxas as a director and orders that Mr Yong, or alternatively Joytown and Resort Planners, purchase HDR Consulting's shares in the Company in an amount to be determined by the Court. 4By his affidavit dated 25 February 2012, Mr Ruiz de Roxas sets out the history of his involvement with the Company and the development of the property. Mr Ruiz de Roxas identifies concerns as to the process by which, in particular, an entity Ausbao Pty Limited ("Ausbao") became a shareholder of the company in March 2001, arising from a document which he says he obtained about December 2009. It appears that Ausbao in turn transferred its shares to Resort Planners in November 2004, which is an entity owned by Mr Yong's wife. The outcome is that HDR Consulting is shown, in records maintained by the Australian Securities and Investments Commission, as holding 42 shares in the Company; Joytown as holding 42 shares; Resort Planners as holding 16 shares; and that interests associated with Mr and Mrs Yong therefore have a majority interest in the company. 5By a further affidavit dated 17 April 2013, Mr Ruiz de Roxas claims to have had an expectation that he would take part in the Company's management since its inception in March 2000 and refers to an initial proposal, which did not proceed, for the Company's undertaking to be conducted through a limited partnership structure. Mr Ruiz de Roxas refers to his involvement in aspects of the work done by the Company to develop the proposed resort and his evidence is that he and his wife made substantial financial contributions to the Company in the expectation of having a continuing role in its management. 6On 2 April 2013, Joytown requisitioned a meeting of the Company under s 249F of the Corporations Act to be held on 26 April 2013 to consider a resolution for Mr Ruiz de Roxas' removal as a director of the Company in accordance with its constitution and the Corporations Act. It can readily be inferred that, since interests associated with Mr and Mrs Yong have a majority of shares in the Company, that resolution will pass unless its passage is restrained by the Court pending a final hearing of the challenge to the resolution. The result, as Mr Ruiz de Roxas contends, is that his interests would be left with a substantial financial interest in the Company which would then be under Mr Yong's sole control, as the sole director of the Company. 7By letter dated 10 April 2013, Mr Ruiz de Roxas' solicitors took issue with comments made by Joytown in its explanatory memorandum sent with the notice of general meeting and requested Mr Yong to give notice withdrawing that notice of meeting on behalf of Joytown and foreshadowed that relief would be sought from the Court if an undertaking to that effect was not given. Mr Yong responded by letter dated 17 April 2013 that he was overseas (having departed 3 April 2013, the day after the meeting was called) and would be returning "at the end of April", after the date of the proposed meeting, which was intended to take place by telephone. That letter contends that the meeting was properly convened and that it is the right of shareholders to vote on the removal of a director. Mr Yong did not give the requested undertaking and requested that the Applicants draw his letter to the Court's attention, as they had done. 8By a further letter dated 21 April 2013, referring to documents which had been served following an order for short service made by the Court, Mr Yong took issue with the factual matters raised by Mr Ruiz de Roxas and protested that Mr Ruiz de Roxas was "rushing off to Court when [Mr Yong was] overseas". One might interpolate that, if Mr Ruiz de Roxas was to seek the Court's intervention, he would have no alternative to doing so while Mr Yong was overseas, when Mr Yong had left for overseas immediately after the meeting was called and would not return until after it was held. Mr Yong, Joytown and Resort Planners requested that letter also be provided to the Court, which was also done. 9There is evidence of service of the interlocutory process, affidavits and copy of orders made by the Court for short service on Mr Yong at his usual place of residence and by email, in accordance with the orders for short service made by the Court, and also of service of documents filed in the proceedings to date on Joytown and Resort Planners at their registered office. None of Mr Yong, Joytown or Resort Planners appeared on the application. 10Mr Newton, who appears for the Applicants, has drawn attention to authorities which indicate the Court's power to grant interlocutory relief in a case of this character. In Turnbull v National Roads & Motorists' Association Ltd [2004] NSWSC 577; (2004) 50 ACSR 44, albeit in the very different context of the holding of a meeting where its purpose had been overtaken by events, Campbell J held that the Court had power to order that a meeting not be held as a step in regulating the Company's affairs under s 233(1)(c) of the Corporations Act, although his Honour also there noted (at [51]) that: "The power of the Court to make an order under ss 232 and 233 of the Corporations Act 2001 (Cth) on the ground that something prescribed by the Corporations Act 2001 (Cth) is contrary to the interests of the members as a whole, is a power which must be exercised with the greatest of care. The Court is extremely reluctant to interfere, in advance, with the ordinary processes of company democracy. It is a well-established rule of thumb that a Court will, only in the rarest of circumstances, injunct the holding of a company meeting. Questions of what is, or is not, in the interests of the members as a whole are often best left to be decided by the officers, organs and procedures of the company itself or by the Court deciding, after events have happened, whether those events fall short of a legally required standard of conduct by virtue of them not having occurred in the interests of the members as a whole. If the Court is asked to make an order under s 233 on the ground that some proposed course of conduct is contrary to the interests of the members as a whole, there will frequently be factual difficulties in demonstrating with sufficient certainty that that course of conduct is indeed contrary to the interests of the members as a whole. All these matters combine to show that it is likely to be only in a very rare case that a Court will decide to order that a company meeting validly requisitioned, need not be held, or that a resolution validly proposed, need not be put to a meeting." 11His Honour's observations seem to me to have substantial force. However, it should be noted, first, that his Honour held that the Court did have power, in such an exceptional case, to restrain such a meeting under s 233 of the Corporations Act. Secondly, and importantly, his Honour's observations were directed to the situation where the attack on a meeting was that the resolution to be passed was not in the interests of the members as a whole. The attack brought by Mr Ruiz de Roxas and HDR Consulting is of a different character. The claim is not that the proposed resolution is not in the interests of members as a whole, which would in any event be an elusive concept where a company is closely held with essentially, three shareholders in two interests; it is, instead, that the proposed resolution is contrary to the basis of Mr Ruiz de Roxas' and HDR Consulting's interest in the Company, that is, it is contrary to a private interest, not to the interests of members as a whole. 12In Remrose Pty Ltd v Allsilver Holdings Pty Ltd [2005] WASC 251; (2005) 225 ALR 588, Hasluck J granted an interlocutory injunction to restrain the removal of a director of a company in very similar circumstances to the present case. His Honour observed (at [125]) that: "...in circumstances where a minority shareholder, such as the plaintiff company in the present case, has a legitimate expectation for management rights (as a consequence of an understanding or agreement between the principal shareholders) steps taken by a majority shareholder to effect an exclusion from management may give rise to an enforceable cause of action. A case for relief can be pursued under and by virtue of the statutory provisions concerning oppression, on the grounds that the conduct complained of is oppressive or unfairly prejudicial to or unfairly discriminatory against the minority shareholder." 13His Honour also observed (at [126]) that such conduct can be regarded as the infringement of an entitlement in the nature of a legal right, so that: "...the party whose expectations as to participation in management is or is likely to be obstructed is in a position to apply for relief by way of interim injunction, provided the criteria governing the grant of interim injunctions are satisfied in other respects." 14His Honour noted (at [127]) that a legitimate expectation as to management rights "may be found either in an understanding reached when the enterprise was set up, or by a process of inference from the way in which the subject business has been managed". The analysis based on a minority shareholder's understanding or expectation adopted in Remrose was in turn approved by Barrett J in Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343. 15In determining whether an interlocutory injunction should be granted in the present case, I should apply the principles set out by the High Court of Australia in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 at [65], which in turn reflected earlier authorities requiring that there be established a prima facie case or a serious question to be tried in respect of the application. Those principles were referred to in Remrose and also in Stratford Sun Ltd v OM Holdings Ltd [2011] FCA 414; (2011) 83 ACSR 84 at [7]. In order to obtain interlocutory relief, the applicants must not only demonstrate a prima facie case or serious question to be tried as to the alleged breaches of the oppression provisions of the Corporations Act, but also that damages would not be an adequate remedy, so as to warrant the grant of injunctive relief, and that the balance of convenience favours the grant of an injunction on an interlocutory basis. 16In this case I am satisfied, having regard to Mr Ruiz de Roxas' evidence of an expectation of an involvement in management in the Company (which is, I recognise, contested in the correspondence from Mr Yong), the fact that Mr Ruiz de Roxas has in fact been a director of the Company since its incorporation many years ago, and his significant investment in the Company, that he has established a serious question to be tried that he has a legitimate expectation of participation in management which would be frustrated by his removal as a director. It seems to me that damages are not likely to be an adequate remedy, where there is a significant risk that transactions could be undertaken by Mr Yong consistent with his view of the Company's interest, and inconsistent with Mr Ruiz de Roxas' view of those interests, in circumstances that there was then only one director of the Company, and given the difficulty in quantification of losses suffered by reason of such transactions. It seems to me that the balance of convenience strongly favours the grant of interlocutory relief, not to prevent the meeting itself, but at least to prevent the passage of the foreshadowed resolution at that meeting, until the matter is next listed before the Court in respect of the substantive proceedings on 6 May 2013. 17In these circumstances, and on the applicants' undertaking as to damages, I make the following orders: